Case Law Details
Ozone Projects Private Limited Vs Commissioner of Service Tax (CESTAT Chennai)
CESTAT Chennai held that as there is no tax liability on the advance amount received by the appellant, demand of interest thereon unsustainable.
Facts- The appellant is registered with the Service Tax Commissionerate for various services including works contract service. During the course of audit of accounts, it was noticed that the appellant was engaged in providing construction services for a project viz. “Metro Zone” at Anna Nagar, Chennai. Later, the appellant did not provide the services and also had to return the advance received along with compensations. The Department was of the view that the appellant was liable to pay Service Tax on the advance received.
Further, the appellant had engaged various services for residential construction to be handed over to an assessee, for which also Service Tax was not paid by the appellant. The appellant had collected electricity charges, water / CMWSSB charges and infrastructure charges from various allottees, which were includible in their taxable value and the appellant had not discharged Service Tax on such charges contending that these are reimbursable expenses. That they had availed ineligible credit on architectural fees, construction charges incurred for interior work of guest house, Sodexo Pass, insurance, air travel, etc., which according to the Department was wrongly availed; that the appellant had to pay interest on the irregularly availed CENVAT Credit which was also utilized by them. Further, that the appellant had not discharged Service Tax on the expenses incurred by them during the import of professional and technical consultancy service under reverse charge mechanism.
Vide order impugned herein dropped certain demands, however confirmed a portion of the Service Tax demand. Aggrieved by such order, the appellant is now before the Tribunal.
Conclusion- Held that the adjudicating authority has categorically held that there is no tax liability on the advance amount of Rs.85 crores received by the appellant and returned thereafter. However, the adjudicating authority has proceeded to confirm the demand of interest on such Service Tax. We do not understand how the liability of interest would arise when there is no liability to Service Tax. Hence, the same is required to be set aside, which we hereby do.
The issue as to whether demand of Service Tax can be made on reimbursable expenditure has been settled by the Hon’ble Apex Court in the case of Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (10) G.S.T.L. 401 (S.C.)].
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts of the case are that the appellant is registered with the Service Tax Commissionerate for various services including works contract service. During the course of audit of accounts, it was noticed that the appellant was engaged in providing construction services for a project viz. “Metro Zone” at Anna Nagar, Chennai. Later, the appellant did not provide the services and also had to return the advance received along with compensations.
1.2. The Department was of the view that the appellant was liable to pay Service Tax on the advance received; further, that the appellant had engaged various services for residential construction to be handed over to an assessee Shri G.N. Pandian, for which also Service Tax was not paid by the appellant. For the period from August 2009 to June 2010, there was belated payment of Service Tax for which the appellant had to pay interest. Again, the appellant had collected electricity charges, water / CMWSSB charges and infrastructure charges from various allottees, which were includible in their taxable value and the appellant had not discharged Service Tax on such charges contending that these are reimbursable expenses. That they had availed ineligible credit on architectural fees, construction charges incurred for interior work of guest house, Sodexo Pass, insurance, air travel, etc., which according to the Department was wrongly availed; that the appellant had to pay interest on the irregularly availed CENVAT Credit which was also utilized by them. Further, that the appellant had not discharged Service Tax on the expenses incurred by them during the import of professional and technical consultancy service under reverse charge mechanism
2. Show Cause Notice dated 24.10.2011 was issued proposing to demand Service Tax along with interest and for imposing penalties, by invoking the extended period.
3. After due process of law, the original authority vide order impugned herein dropped certain demands, however confirmed a portion of the Service Tax demand. Aggrieved by such order, the appellant is now before the Tribunal.
4.0. Ld. Counsel Shri S. Sankaravadivelu appeared and argued on behalf of the appellant. The issues that were considered by the adjudicating authority is adverted to by the Ld. Counsel, as referred to in paragraph 7.0 of the impugned and as extracted below: –
“(i) Whether the activity under taken by the assessee to construct “Metro Zone” project at Chennai is classifiable under ‘Works Contract Service’ or ‘Commercial Construction Service’ and whether service tax is payable on the advance amount of Rs.85 crores received from M/s. Himadri Enterprises Private Limited towards construction of 2,50,00,000 sq. feet of commercial construction or otherwise.
(ii) Whether the service tax is payable on the 1,10,000 sq. feet of constructed area of residential construction to be handed over by the assessee to Shri G.N. Pandian?
(iii) Whether interest is payable on the belated payment of service tax for the period from August 2009 to June 2010?
(iv) Whether electricity charges, water / CMWSSB charges and infrastructure charges realised by the assessee are includable in the gross value and service tax is payable on such value?
(v) Whether cenvat credit is eligible on Architectural Fees, Construction Charges incurred for the interior work of the assessee’s guest house and on Sodexo Pass, Insurance, Air Travel, Hotel Accommodation, Catering and Entertainment Services received by the assessee?
(vi) Whether interest is payable on reversal of irregular cenvat credit availed and utilised by the assessee?
(vii) Whether service tax is payable on the expenses incurred by the assessee during the import of ‘professional and technical consultancy service’ under reverse charge mechanism?
(viii) Whether extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 could be invoked to demand service tax?
(ix) Whether penal action under Section 75, 76, 77 and 78 of the Finance Act, 1994 could be taken against the assessee?”
4.1 The Ld. Counsel submitted that the adjudicating authority has dropped the demand against issue No. (ii) above and therefore, the appellant is not in appeal in regard to the said issue.
4.2. So also, issue No. (v) in respect of allegation of CENVAT Credit wrongly availed by the appellant, there is no contest in this appeal.
4.3. With regard to issue No. (vi), which is the demand of interest on irregularly availed CENVAT Credit, the appellant is not contesting the same as they have already paid the interest.
4.4. With regard to issue No. (vii), the appellant is not contesting the issue.
4.5.1 The main contest in this appeal, as submitted by the Ld. Counsel for the appellant, is with regard to the demand of interest on the advance returned by the appellant in respect of “Metro Zone” Project. Paragraph 14.1 of the impugned order was referred to by the Ld. Counsel to submit that the appellant had received an amount of Rs.85 crores as advance for the aforesaid project; since the project failed, the advance was returned to the client and no services were provided and that the adjudicating authority has dropped the demand of Service Tax raised in the Show Cause Notice in respect of such advance amount of Rs.85 crores received by the appellant but, interest on such demand proposed in the Show Cause Notice has been confirmed.
4.5.2 It is argued by the Ld. Counsel that when the demand of Service Tax is not sustainable, the interest ought not to have been confirmed by the adjudicating authority.
4.6.1 He would refer to paragraph 17.0 of the impugned order to argue the issue with regard to reimbursable expenses. It is submitted that the appellant had collected electricity charges, water charges, sewerage charges and infrastructure charges from the allottees of the project; that these charges have been deposited with the concerned authorities. The original authority has confirmed the demand of Service Tax observing that the appellant has collected mark-up on these charges. He would contend that in fact, the appellant has not collected any mark-up and they collected only the actual charges; the documents in respect of collection from the allottees would establish the same.
4.6.2 Further, it is argued that the appellant is not allowed to collect any mark-up as the allottees would not pay such higher amount to the appellant; that being reimbursable expenses, the demand of Service Tax on such actual charges cannot sustain and pleaded that the same may be set aside.
4.7 The Ld. Counsel for the appellant prayed that the above issues may be allowed in favour of the appellant.
5. The Ld. Authorized Representative Shri M. Ambe appearing for the Revenue supported the findings in the impugned order. He pleaded that the appeal may be dismissed.
6. Heard both sides.
7.1. The first issue is with regard to demand of interest in respect of advance of Rs.85 crores for the project namely, “Metro Zone” received by the appellant and returned to the client. The discussion made by the adjudicating authority in paragraph 14.1 of the impugned order reads as under: –
“14.1 As per Section 67 of the Finance Act, 1994, service tax is chargeable on any taxable service with reference to its value and such value shall be the consideration received and to be received by the provider of the service. Whereas in the present case as already discussed in detail in preceding paragraphs, the assessee has received an advance amount of Rs.85 crores from M/s. Himadri for the services to be provided and as per Section 67 of the Act, the same is taxable. However, it is established that the assessee has ultimately not provided the intended service to M/s. Himadri who has relinquished their right on the proposed constructed area. Even if the assessee had paid service tax on such advance amount of Rs.85 crores on the day of receipt the same can be taken back as credit on refunding the advance amount in terms of Rule 6(3) of the Service Tax Rules, 1994 as the assessee had not carried out construction activity and not provided any service and sold the land subsequently to M/s. Sugam Vanjiya Holdings Private Limited vide sale deed dated 18.09.2013. Therefore the tax liability has been nullified. Further, the compensation amount of Rs.103.50 crores paid by the assessee for not carrying out the project within the reasonable time is against the cancellation of arrangement and therefore has no bearing on the advance consideration received for the services originally proposed to be provided. Therefore, I hold that the advance amount of Rs.85 crore is not liable for service tax, however I hold that the assessee is liable to pay the interest on the such tax amount of Rs.3,50,20,000/- calculated on such advance amount of Rs.85 crores from February 2009 i.e. the date of considering the amount of Rs.85 crores as an advance consideration to the date of return of said advance and the interest amount of Rs.2,54,01,493/- as detailed in the Annexure to the order is liable for confirmation.”
7.2 From the above, it can be seen that the adjudicating authority has categorically held that there is no tax liability on the advance amount of Rs.85 crores received by the appellant and returned thereafter. However, the adjudicating authority has proceeded to confirm the demand of interest on such Service Tax. We do not understand how the liability of interest would arise when there is no liability to Service Tax. Hence, the same is required to be set aside, which we hereby do.
8.1 The second issue is with regard to the demand on reimbursable expenses. It is brought out from the discussion at paragraph 17.0 in the impugned order that these are nothing but electricity charges, water charges, sewerage charges and other infrastructure charges; the period is from 2009-10 to 2010-11. The Department is of the view that the appellant has collected higher amount than the actual charges, however, it is not mentioned as to whether from which allottees the appellant has collected such higher charges. The Ld. Counsel for the appellant has submitted in this regard that they have only collected the actual amount.
8.2. The issue as to whether demand of Service Tax can be made on reimbursable expenditure has been settled by the Hon’ble Apex Court in the case of Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (10) G.S.T.L. 401 (S.C.)]. Following the same, we are of the considered opinion that the demand cannot sustain and requires to be set aside, which we hereby do.
9. In view of our above discussions, we hold that: –
(i) The demand of interest on the advance (of Rs.85 crores) received by the appellant and returned thereafter, as confirmed in paragraph 14.1 of the impugned order, cannot sustain and requires to be set aside, which we hereby do.
(ii) The demand of Service Tax on the reimbursable expenses, as discussed in paragraph 17 of the impugned order requires to be set aside, which we hereby do.
(iii) The penalties imposed in respect of these two demands are set aside.
10. The impugned order is modified to the extent of setting aside these demands without disturbing the remaining portion of the order.
11. The appeal is partly allowed on the above terms.
(Dictated and pronounced in open court)
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